The U.S. Department of Justice has charged certain franchisees of Jackson Hewitt, the nation's second-largest tax preparer, with committing massive tax fraud. See DOJ news release. As Everson notes in the release, preparation of false returns "has a corrosive effect on the tax system." Id. The complaints charge twenty-four individuals and five corporate operators of 125 different offices in Atlanta, Chicago, Detroit and Raleigh-Durham. See Jonathan Stempel, US Accuses Some Jackson Hewitt Outlets of Tax Fraud, Reuters (April 3, 2007). For more information generally on tax return preparer fraud, see the IRS website.
The complaints allege that the Jackson Hewitt operators filed bogus returns with false claims for deductions costing the government about $70 million in taxes. One such claim was that a barber should have a fuel-tax credit for 25,000 gallons of gas for off-road business use, which would mean driving more than 1300 miles a day, seven days a week for the full year. DOJ news release
The complaint against the forty-two Atlanta offices, for example, seeks to enjoin the defendants from acting as tax return preparers and from assisting in filing returns that they know will understate tax due, from "asserting unsupported, frivolous, or reckless positions", and from "organizing or selling tax shelters", among other activities. See Complaint against Smart Tax of Georgia. The complaint alleges that the defendants have "created, directed, fostered and maintained a business environment ... in which fraudulent tax return preparation is encouraged and flourishes." Id. It notes that the primary owner, Sohail, has taken the position that his employees have no need to question any information provided by customers or to try to prevent filing of clearly bogus claims. It asserts that preparers "willingly turn a blind eye" to customers' fraud or willingly assist customers in commiting fraud. Some preparers even sell Social Security numbers to their customers so that they can claim additional dependents on their returns, and managers pushed employees not to turn away customers who were attempting to use bogus information.
The Jenkins & Gilchrist and Jackson Hewitt meltdowns show that the enforcement lesson hasn't yet sunk in well enough. Doing whatever it takes to make lots of money isn't okay--lawyers, accountants and businesspeople need to think about the ethical consequences of their actions and their own potential criminal liability. It isn't okay to facilitate others' tax evasion. The federal fisc is cheated, but more than that all honest taxpayers are cheated when that happens.
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